In this study, we employ in vitro models to study the factors involved in the differentiation of pancreatic precursor cells into hormone-producing cells of the islets of Langerhans and their mechanisms of action with a goal to develop a system that could be used for cell replacement therapy for patients with diabetes mellitus. Development of the endocrine pancreas includes a series of early events wherein precursor cells migrate to form aggregates that subsequently differentiate into islets of Langerhans. We use cells derived from human cadaveric pancreata, human islet-derived precursor cells (hIPCs) and CD73/CD90/CD105-positive mesenchymal stem cells (+++MSCs), and a human pancreatic cancer cell line (PANC-1 cells) to study regulation of proliferation, cell migration and aggregation that precede differentiation and differentiation itself. 1) We have now demonstrated that hIPCs are pancreatic MSCs that can differentiate in vitro and in vivo into hormone-expressing cells of the endocrine pancreas. Indeed, we have provided preliminary evidence that bona fide MSCs reside in the pancreas in situ, 2) We showed that hIPCs, and preliminarily +++MSCs, exhibit epigenetic marks that are associated with active gene transcription on the insulin gene even though they are not actively transcribing this gene. This most likely represents a state of commitment for these stem cells to differentiate further to mature endocrine cells. 3) We showed that signaling via the -catenin pathway is critical for proliferation of hIPCs. This pathway may, therefore, be an important target for regulation of the switch from mesenchymal cell proliferation to differentiation to endocrine cells. 4) We showed that the plasminogen/plasmin pathway is capable of regulating PANC-1 cell aggregation that is an early stage in differentiation of these cells into endocrine cells.